An alternative review of the year 2016

How best to tell the tale of another extraordinary year for the global banking industry? Perhaps through one of the few concepts that all bankers understand: awards. But not in the traditional sense. Euromoney picks out the key people and the biggest stories that defined 2016. As for the winners? Before they get too excited, perhaps they should take heed of the 'Be careful what you wish for' award...

Two years ago there would have been a very long shortlist of potential winners for this award among the upper echelons of the banking industry. But a period of rapid turnover in the C-suites of the world’s top financial institutions has narrowed the field.

One outstanding candidate remains: the chairman of struggling Deutsche Bank. Jaws hit the floor when it was announced at the end of November that Deutsche’s supervisory board would recommend a renewed term for Paul Achleitner as its chairman, after an internal probe cleared him of wrongdoing in relation to how the bank dealt with an official investigation into the Libor affair.

If only that was the single item on the charge-list against Achleitner. He has been chairman since 2012; in that time the bank’s shares have lost more than half their value. Although it was his predecessor Clemens Börsig who nominated the now discredited co-CEO team of Anshu Jain and Jürgen Fitschen, Achleitner stood by them even as they announced a strategy update that shareholders and the market at large did not believe in. He only brought John Cryan into the chief executive’s chair when the call for change became overwhelming.

Achleitner’s loyalty to Jain in particular has discredited him in Germany. Leading magazine Der Spiegel, in a hard-hitting October 2016 cover story entitled ‘Greed: How a pillar of German banking lost its way’, wrote witheringly: “As more and more information came to light between the years 2012 and 2015 about the ways Deutsche Bank traders had made their billions, Jain did little to help clear things up. He instead whitewashed and dallied, while enjoying the protection of Achleitner, the supervisory chair.”

Those outside German banking circles remain surprised that Achleitner was given oversight of Deutsche in the first place. This, after all, was the Allianz executive who was the inspiration behind the insurer’s ill-fated takeover of Dresdner Bank more than a decade ago.

As Cryan battles to save Deutsche, he is likely to be the only potential saviour of Achleitner’s position. For now, it seems, shareholders are backing Deutsche’s chairman because they do not want any more upheaval in the senior ranks at such a crucial time.

OK, so the president-elect of the United States is not a central banker. But with his surprise election victory he managed to do overnight what countless real governors failed to do for nearly a decade: steepen the yield curve.

By winning the election, he discredited the US polling industry. When markets reacted to his victory by moving the curve and sending bank share prices into a surprise bull-run, he discredited another group, the financial market analyst community, who failed en masse to see the implications of his victory.

Of course, with Trump yet to take power, it could well be that the financial-market honeymoon period is over before his move into the White House is even completed. But Euromoney readers should really view this alternative award as a damning indictment of the central bank governors of the developed world – step forward, or perhaps back, Ms Yellen, Signor Draghi and Mr Carney.

Throughout 2016 they have failed to find new monetary policy tools and remained wedded to strategies that are not working today and are storing up a host of problems for the future.

More than that, 2016 ended with perhaps more regulatory uncertainty than at any time since the financial crisis.

As Euromoney wrote in its September 2016 editorial: “Ahead of the G20 summit in Hangzhou in September, Mark Carney, chair of the Financial Stability Board, wrote a letter to world leaders accompanying a glowing report into the effects of financial regulatory reforms. Marking his own homework, Carney awarded the FSB A* grades for making the large international banks and the financial markets much more resilient, adding special praise for having achieved this while maintaining the overall provision of credit to the real economy. The FSB assures G20 leaders that emerging-market economies have not noticed any serious unintended consequences from implementing the reforms. And while the FSB concedes that attention still needs to be paid to maintaining an open and integrated financial system, it says that regulatory reforms appear to have helped avoid retrenchment and market fragmentation.

“This is hogwash.”

The year ended with the EU preparing to walk away from Basel IV lest it destroy credit intermediation in Europe, while also threatening to retaliate against Washington with ring-fenced capital and liquidity for non-US banks in Europe. We have a US president-elect saying he will rip up Dodd-Frank because it has stopped banks from lending.

As one commentator summed up the situation to Euromoney: “Open and integrated financial systems? My arse.”

Euromoney sits down regularly with the chief executives of some of the world’s biggest banks. As a rule, they like to run through appraisals of how their peers are doing.

Throughout 2016, when the discussion reached the subject of Tidjane Thiam and Credit Suisse, the reaction was along these lines: [Shaking head]: “I just don’t know what they are doing, and I am not sure he does either.”

Thiam’s credibility has been undermined by some of his public statements. He did not get off to a particularly good start on that front before he even started in the role, telling reporters in March 2015: “I’ve reorganized many investment banks in my career. I’ve studied physics and maths, the maths behind derivatives are a relatively primitive version of that. There is nothing that I don’t understand in investment banking.”

But it turned out there was plenty he did not understand, or at least know about, in the investment bank in 2016. In March he slammed the bank’s global markets division when announcing $346 million of unexpected write-downs from the fourth quarter of 2015: “When I spoke on October 21 I was not aware of the existence of positions on that scale,” Thiam said, saying it was “unacceptable” that staff had concealed risky positions from senior management. Some of Thiam’s peers said it was a mistake for him to admit so much.

Fast forward to September, and Thiam was at it again, telling reporters at a conference that European banks were in a “very fragile situation”.

He went on: “I think there is a lot of doubt, a fundamental doubt, is there a viable business model that covers its cost of equity?” Honest comments perhaps, but are they sensible ones to make at a bank whose share price has continued to perform poorly and which is hoping investors stump up the cash for the IPO of its Swiss unit in 2017?

Amid all that uncertainty, the headline of an interview that Thiam gave to Bloomberg at the end of October certainly raised eyebrows. Asked if better-than-expected second quarter results meant that Credit Suisse was finally winning, Thiam said: “Oh God, I will never declare victory.”

One competitor CEO could not resist rising to the bait. “Oh God, that’s the truest thing he has said to date,” he told Euromoney with a smile, shaking his head.

Where would we all be without the amazing insight that Goldman Sachs provides to the global political debate? While politicians clam up when being grilled by professional TV inquisitors, they become effusive when they have a cheque waved in their face by Goldman or get the chance to share some stage time with senior executives of the investment bank.

The topic of what Hillary Clinton said in her paid speeches to Goldman ran through the US presidential election – from the Democratic primaries to the face-off for the White House itself. Hillary would not say. Neither would Goldman. Then Wikileaks came to the rescue and put them all on the internet.

Perhaps the most telling comment came on stage with CEO Lloyd Blankfein in October 2013. She told him that she wished presidential campaigns were shorter. “Look, I am of the mind that we cannot have endless campaigns,” Clinton said. “It is bad for the candidates. It’s bad for the country.”

No doubt Hillary wishes the campaign had come to an end in early October, when she had as much as a 10-point lead in most polls and before it was announced that the FBI was reopening the investigation into her private emails.

Goldman’s influence, of course, extends well beyond the US. So it was not too much of a surprise to learn that in May 2016 Theresa May, then home secretary and now prime minister of the UK, had given warnings about the implications of Brexit at a Goldman summit in London.

May’s public statements since she became prime minister, after the UK electorate had voted for Brexit, have been rather more nuanced.

Of course, Goldman has long had its fingers in the political pie – think Bob Rubin and Hank Paulson as recent US treasury secretaries – which has led to some negative commentary about Goldman’s perceived influence. So it seems the US firm has hit on a new strategy: send out ex-employees as sleepers into the wider world and then let them ascend to power.

Donald Trump has already picked three ex-Goldman staffers to join his elite team: head of strategy Steve Bannon, treasury secretary Steve Mnuchin and head of the National Economic Council, Gary Cohn.

One Goldman PR recently complained to Euromoney about Bannon: “We wish the media would mention one of his other jobs. He worked here for a minute and wasn’t even senior.”

When he stepped down in April 2016, Blessing had held the top seat at Commerzbank longer than any other CEO at a large European bank, aside from Frédéric Oudéa, named as chief executive of Société Générale in the same month as Blessing: May 2008.

Blessing took the top job at Commerzbank just before it merged with Dresdner Bank – an ambitious but ill-fated deal designed to take the bank to second place in Germany behind Deutsche Bank, but agreed just two weeks before the collapse of Lehman. By going ahead with that merger as the financial crisis began, Blessing saw his bank rescued with an €18 billion injection of state aid that had to be repaid by repeat capital raisings that regularly diluted shareholders.

Euromoney asked him if he had his time again, would he still do the Dresdner deal? “Yes I would do it again,” Blessing told us, “only I would probably do it eight weeks later.”

He learned the lesson that timing is everything.

Blessing’s career was defined by efforts to rebuild Commerzbank’s business, its capital, its profitability, its reputation and its relationship with customers, investors and German society after the state rescue.

Only towards the very end, after also seeing the bank through losses from the write-down of Greek government bonds, did he cease to be a target of criticism. The board asked him to carry on as CEO, but Blessing declined.

For 2015, Commerzbank managed a net profit of €1.1 billion, the first time it had returned more than €1 billion since 2007. In one of his last and most symbolic acts, Blessing finally re-instated Commerzbank’s dividend, just as Deutsche had to suspend its own. Job done, it seemed.

Blessing is now regarded as one of a bench of possible replacements for Ermotti, who is three years older.

Intriguingly, his successor, Martin Zielke, just a few months into his time as CEO of Commerzbank, announced the restructuring of the bank into two divisions instead of four, net job cuts of 7,300 staff, renewed investment in digitalization and expense controls to cope with negative interest rates and losses on old shipping loans. Zielke had to suspend once again the dividend that Blessing had briefly restored.

Blessing may have nursed Commerzbank to recovery through the aftermath of the financial crisis, but the job of restoring it to full health as a successful and profitable banking business had barely even begun.

Palming that off to the next man shows Blessing – as a master of timing – might have found a suitable home in Switzerland.

He eventually agreed to come along in June, but must have regretted that fairly quickly. He gave the impression that it was all simply too tiresome for words. He looked bored and thoroughly unimpressed, behaviour not guaranteed to foster a great relationship with his inquisitors.

And so it turned out. Woody tried valiantly to explain how relationships work in banking. Sometimes banks offer informal advice, perhaps for no compensation. In the end, nothing he could say was going to endear him much to the group: he was a wealthy banker, and it was hard for them to see much past that.

The winner of the award, however, was in an altogether different league. The circumstances surrounding the appearance of John Stumpf, CEO and chairman of Wells Fargo, before the US Senate Banking Committee on September 20, were fairly catastrophic.

His committee hearing was memorable for his grilling by Democrat senator Elizabeth Warren. The formal description of the proceedings, ‘An Examination of Wells Fargo’s Unauthorized Accounts and the Regulatory Response’, hardly did justice to a process during which Warren, in the words of ‘Late Show’ host Stephen Colbert, “tore him a new Stumpf-hole”.

Warren’s questioning of him lasted about 18 minutes, during which he notched up total speaking time of less than three minutes, such was the onslaught from Warren.

Stumpf said repeatedly that he was “accountable”, she noted. So had he resigned as CEO? Had he returned “one nickel” of what he had been paid? Had he fired a single senior executive? What had his personal gain in wealth been during the period in question? Had he been aware of the pending investigation at the time when Carrie Tolstedt, who had led the Community Banking division, was allowed to retire? Did he consider firing her?

His stuttering responses were certainly not what she was after. Her exasperation knew no bounds: “This just isn’t right!” “This is unbelievable!” “Seriously?” “This is gutless leadership.”

It is not as if his words were completely absent, however. Warren had pages of transcripts of his comments from earnings calls and annual reports to fill in the gaps, including Stumpf’s cringe-making assertion that the reason why employees had a target of getting customers to take eight separate products was because “eight rhymes with great”. Warren barely knew how to react to that.

Her verdict was brutal: “You should resign. You should give back the money that you took while this scam was going on and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission.”

On October 12, John Stumpf resigned as CEO and chairman of Wells Fargo. Warren, along with everyone else in the finance industry, was left with one unanswered question: what took him so long?

Bankers are known to stick together, and there used to be nothing unusual about the sight of whole teams upping sticks for new digs at a rival across the street. That does not happen quite as much these days, but that does not mean that senior execs do not want to surround themselves with people they know and trust, even if that means drawing from the same well over and over again.

The latest recruit is Tim Throsby, who is joining in January 2017 to run Barclays International, the bit of the firm that includes its investment bank.

Staley sees no issue with the policy of raiding his old shop for senior talent. Quite the opposite, in fact – Barclays insiders say that putting together a management team that can deliver on Staley’s promises is arguably the firm’s biggest achievement of the last 12 months. But avoiding perceptions of a clique will doubtless be his next most important one. And can it be true that his old boss, Jamie Dimon at JPM, phoned Staley’s new boss, Barclays chairman John McFarlane, to say that the poaching had to stop?

There is nothing wrong with going with what you know. If the people are as good as he thinks they are, then there should be few complaints. But banking egos are easily bruised. It will take all of Staley’s political deftness to ensure that aspiring stars at Barclays do not feel that their only route to the top is to have worked somewhere else first.

When Narendra Modi became prime minister of India in 2014, he quickly realized he had a bit of a central bank problem. The head of the Reserve Bank of India was Raghuram Rajan, an erudite academic with impeccable credentials. He had been in the job for less than nine months, yet the RBI had already achieved much, successfully narrowing the deficit, stabilizing the rupee and getting runaway inflation under control.

But Modi had his misgivings. That Rajan had been anointed by his prime ministerial predecessor, Manmohan Singh, was a crime he could forgive. And there was little he could do about the RBI chief’s intelligence, charisma and piercingly incisive turn of phrase. Rajan was more charming and worldly than Modi, and, as befits the youngest-ever chief economist of the IMF, had the confidence and the temerity to lecture the US Federal Reserve on its interest rate policy. At times he strayed a little too close to the political arena, as when voicing his distaste for political corruption and religious intolerance.

Yet it was Rajan’s intransigence when it came to domestic interest rates that forced him out of the central bank, exactly 365 days before the end of his four-year term. Modi’s pick as finance minister, Arun Jaitley, had long exhorted Rajan to slash rates to boost growth, yet the RBI chief, his focus fixed on killing inflation for good, pushed back, maintaining rates at 8% well into 2015.

He could do so because of the unusual level of power wielded by the head of the central bank. For decades the RBI had no monetary policy committee. The central bank chief could canvass anyone about the direction and level of interest rates, but decisions were ultimately his and his alone.

Modi and Jaitley hated that state of affairs. So too, curiously, did Rajan. All three argued for the creation of an MPC, with opinions diverging only over its size and composition. Throughout 2015 numbers were batted back and forth. The MPC would comprise a five-strong committee, then a seven-strong group, staffed by first a majority, then a minority of (pardon the paradox) independent-minded government appointees.

In the end, the government got its way. On October 4, a month after Rajan’s departure, the new MPC sat in committee for the first time. There were six faces around the table. Three, including the new governor, Urjit Patel, were long-time RBI officials. The remainder were public-sector academics. In the event, the group voted six-to-zero to cut the benchmark rate by 25 basis points to 6.25%. (It would have been up to Patel to break a tie). The decision surprised most analysts, who, seeing little reason to stoke a booming economy, had tipped rates to stay on hold. But it pleased Jaitley, who had been working hard behind the scenes to make the case for a rate cut.

Were the new members of the MPC motivated by economic practicalities or swayed by the need to mollify the Modi administration? Either way, the central bank is now run by an intelligent but humble and quiescent governor straight out of old-fashioned central casting, while its interest rate policy is determined by a six-strong team whose views seem to chime with the needs and wishes of the government.

Meanwhile, Rajan the rock star, who so often outshone the premier and worked so hard to install a monetary policy committee, is back at school in the US, lecturing at the University of Chicago Booth School of Business.

Modi, that modern Machiavelli, could scarcely have orchestrated a better personal outcome if he had planned it.

When Italian lender Monte dei Paschi di Siena requested solutions for its third bail-out last summer, it was no surprise to see UBS’s investment banking chief Andrea Orcel involved in bidding for the business.

Passera’s involvement raised some eyebrows because he had recently been found complicit in the manslaughter by asbestos poisoning of several workers at Olivetti, where he was chief executive in the 1990s.

The involvement of Orcel is less of a surprise, given his role in several capital raisings for the bank. He also advised on RBS’s catastrophic takeover of ABN Amro in 2007. This resulted in the sale by Banco Santander to MPS of Banca Antonveneta (which it received from ABN Amro as part of the deal). That acquisition, for which MPS was widely viewed to have overpaid, has dogged the bank ever since.

UBS and Passera were, however, beaten to the refinancing punch by JPMorgan and Mediobanca, who lured MPS to their scheme with the promise of a €5 billion rights issue, for which it had secured pre-underwriting agreements from Goldman Sachs, Santander, Citi, Credit Suisse, Deutsche Bank and Bank of America Merrill Lynch.

However, when the Italian bank subsequently sacked its CEO Fabrizio Viola, the new incumbent, Marco Morelli, announced a revised recapitalization plan very similar to the one Orcel and Passera had apparently been suggesting and incorporating a debt-for-equity swap. He also declared himself very open to reassessing the UBS pitch. It looked like the two were back in the game.

Just a few weeks later, however, it was all over… again. Passera and UBS pulled out of the bidding for the restructuring, citing unreasonable disclosure demands put on them by MPS. Given the political instability in the country, however, any MPS rescue is far from secure. Watch this space for their likely return.

It was Deutsche Bank’s chief financial officer, Marcus Schenck, who set the tone for the biggest banking story of 2016 back in January, telling analysts they should not worry about the German bank’s €6.8 billion loss for 2015 because it still had access to both the covered and senior unsecured bond markets at competitive rates and enough capacity to pay coupons on its additional tier-1s.

Cue outright panic.

The bank’s share price collapsed; certain of its AT1 instruments fell to 70% of face value; CDS spreads climbed to crisis-level highs. Journalists door-stepped German finance minister Wolfgang Schäuble to ask the extent of his concern and whether or not the government would support Deutsche if needed.

Euromoney pointed out back then that short-term worries about Deutsche’s cash balances were a mere distraction to its more profound long-term strategic challenges. The bank deployed some of its €215 billion in liquidity reserves buying back senior debt that had fallen to a discount and booked a small notional profit on a trade designed to reassure investors. Some investors, long the bank’s AT1s, had been shorting its stock as an attempted hedge, driving down both markets. The panic subsided.

Having seen his bank narrowly survive one near-death spiral, chief executive John Cryan decided to get on the front foot by assuring customers, shareholders, employees and creditors that the bank would now remove the big uncertainties overhanging it by urging regulators and government agencies around the word to resolve all big outstanding conduct issues.

He claimed that removing this uncertainty would be worth achieving even if the bank had to pay a higher short-term price than it had reserved for.

When the first of these government agencies, the US Department of Justice, took him at his word and suggested in September that $14 billion would be enough to settle misdeeds over RMBS, it promptly focused attention back on the bank’s tight capital position and lack of earnings. It tipped the bank back into a second near-death spiral and raised all manner of uncertainty over how Deutsche would pay not just this settlement but the other large ones.

Cryan told investors that while he still wants to settle all this as soon as possible: “The timelines are not completely in the bank’s hands alone”.

At least analysts ended the year with a clearer picture of the bank’s challenges: it does not have a funding problem, it has a capital problem. The bank has insisted it does not need to issue new equity even as rumours spread of Middle Eastern sovereign wealth funds and German corporates being sounded out for possible support.

Citi’s banks analyst, Andrew Coombs, notes: “It may prefer to wait until litigation issues have been resolved, but the further the share price falls, the more dilutive a capital raise becomes.”

Having started 2016 at €22.53 and sunk as low as €10.55 in late September, Deutsche shares stood at €15.5 at the start of December, a year-to-date loss of ‘just’ 31%.

There are some things Goldman did not contest about the ruling. One, that it lost its client $1.2 billion in no less than nine financial derivative trades Goldman put the Libyans into between January and April 2008; and two, that Goldman made hundreds of millions of dollars in profit from doing so. (In the original skeleton arguments before the trial, the LIA said Goldman made $350 million and Goldman in turn said that “any profits in fact made by GSI [Goldman Sachs International] as a result of the Disputed Trades are irrelevant to the LIA’s pleaded claims.”)

Along the way the High Court was regaled with tales about banking misbehaviour and derring-do in North Africa; from allegations that Goldman bankers not only whisked junior LIA staffers to Morocco but procured prostitutes for them, to LIA chief Mustafa Zarti telling Goldman banker Youssef Kabbaj to “Fuck your mother, fuck you, and get out of my country.”

Winning the case was always going to be a big ask for the Libyans, one that required them to demonstrate a level of institutional incompetence such that they could not understand what Goldman was selling them. The people at the LIA in the early days were not that stupid, the court realized it, and the case was lost. But Goldman, victorious or not, emerged ridiculed.

Of the two bank CEOs ultimately responsible for securing mandates to underwrite IPOs of two of Italy’s most troubled banks, one, Intesa’s Carlo Messina, ended up with a bill of as much as €1 billion. For the other, former UniCredit chief Federico Ghizzoni, it cost him his job.

While the idyllic countryside around Venice was enjoying spring, the region’s two biggest banks were suffering more than a passing storm. But it was in April that the full consequences became clear of UniCredit and Ghizzoni’s decision to underwrite Banca Populare di Vicenza’s IPO, as an ECB-imposed deadline to raise €1.5 billion of new capital at the end of the month approached.

As the run-up to the deadline loomed, UniCredit’s additional tier-1 bonds were under pressure, as bondholders contemplated the prospect of a bail-in, not just of BPV and Veneto but even UniCredit itself. Intesa Sanpaolo had agreed to underwrite the IPO of the other troubled mutual bank in the region, Veneto Banca, although its deadline was later and it needed to raise less, €1 billion.

At the last minute, Atlas – a new vehicle funded by an array of Italian banking and insurance groups – stepped in to sub-underwrite the IPOs and duly took a 99.3% stake in BPV. Claudio Costamagna, chairman of state-owned Cassa Depositi e Prestiti, is thought to have been the fund’s intellectual architect. But both Intesa Sanpaolo and UniCredit had to contribute the biggest amount, around €1 billion each.

The mishap contributed to discontent with Ghizzoni, not least as the scale of the blunder gave a poor impression of Italy’s biggest corporate and investment bank. The hit to the bank’s capital from its participation in Atlas and its consequent indirect equity stake in BPV also accentuated fears of a dilutive capital raising, stripping key shareholders and directors of the last shreds of patience with the former CEO.

Market sources told Euromoney that the underwriting probably came with get-out clauses that they could have invoked, despite the reputational damage of doing so. But the question arose of why Ghizzoni and Intesa Sanpaolo’s CEO Carlo Messina agreed to it in the first place.

The ECB demanded the capital raisings. But if the mandates were appealing in themselves, it seemed a strange coincidence that both the biggest and second-biggest Italian banks took such similarly risky steps (even if Italian bank valuations were much better when they won the deals). Did the government, eager to avoid the financial and political consequences of a bail-in of BPV and Veneto, encourage Ghizzoni and Messina?

Analysts took the formation of Atlas as another sign of how the state was leaning on healthier institutions like Intesa to prop up weaker ones. Many said Atlas was far too small to fund a proper clean-up of Italian banks, including Monte dei Paschi di Siena. Atlas was at least successful, however, in getting UniCredit out of what could have been a fatal trap – even if it still held the biggest amount of Italian bad debts.

Turkey, however, has recently shown itself to be in a league of its own in this respect. In July, Mert Ulker, the head of research at Ak Invest, one of the country’s leading investment banks, was stripped of his professional licence and charged with insulting the institution of the president.

His crime? Producing a standard research report on the failed July 15 coup that mentioned in passing – and dismissed – widespread rumours that the operation might have been part of a false flag operation by the Turkish government.

In the context of the post-coup purges that have seen tens of thousands of civil servants, academics and journalists arrested and imprisoned, the fate of Ulker may seem relatively small beer. Its effect on the credibility of Turkey’s investment banks, however, will be long-lasting.

Commercial banks have also been in the firing line. In August, nearly all the leading players cut interest rates on mortgages after president Recep Tayyip Erdogan indicated that not doing so could be viewed as treason. Asked by local journalists how banks were supposed to survive when forced to lend at a loss, the banking regulator helpfully suggested that they stop spending money on “fancy buildings”.

With the increasingly authoritarian Erdogan continuing to rail against both interest rates and bankers at every opportunity, the outlook for Turkey’s banking sector – one of the most sophisticated and best-managed in the emerging markets – is darkening.

By the widely accepted truism that the capital market takes five years to forget everything, it should have completely forgotten about the CDO of sub-prime ABS by now. The 2015 movie of Michael Lewis’s excellent book ‘The Big Short’ may have jogged its memory, but probably not for long.

The deal was a repackaging of 12 underlying securities from CRT transactions from 2014 and 2015: first loss tranches from various Fannie Mae Connecticut Avenue Securities (CAS) deals and Freddie Mac Structured Agency Credit Risk (STACR) transactions. Fitch described the deal as akin to a real estate mortgage investment conduit (re-Remic).

As a re-securitization of the riskiest, non-investment grade tranches of mortgage securitizations (Fitch rates eight of the 12 underlying securities between single-B plus and double-B plus), it sounds remarkably like something else: a CDO of MBS.

That is because it fundamentally is.

These may be prime agency mortgages rather than sub-prime mortgages, but what is being securitized is the first-loss risky stuff. Much as the arrangers, BAML, and the issuer might not want to admit it, this is a CDO of sub-investment grade securitized mortgage risk. There could be a lot more of it to come. Fannie Mae and Freddie Mac have issued $36 billion of credit-risk transfer notes since 2013.

Buyers beware – if it looks like a duck and quacks like a duck… it probably is a duck.

When the IMF said it would include the renminbi in its basket of special drawing rights from October, it came as a surprise to many. That decision was made the previous November and it followed a tumultuous year for China that included a stock market crash and double currency devaluation – followed by a disturbingly panicky government reaction to both.

By pouring China’s currency into its SDR market, to join the dollar, euro, sterling and yen, the IMF was by implication calling the renminbi, which makes up around 11% of the basket’s overall weighting, a ‘freely usable’ global currency. Few agreed with that description then, and the intervening year will have done little to change their minds.

If anything, 2016 was a year in which the renminbi, also known as the yuan, took a step back, not forward. Global financial centres from Hong Kong to New York and Luxembourg to London, have fought tooth and nail to establish themselves as offshore renminbi trading hubs, yet trading activity in the currency has fizzled rather than flourished.

In the first half of the year, the Canadian dollar overtook the renminbi as the fifth most-widely used international currency, regaining the spot it lost a year ago. Worse was to come in the second six months, with the total value of renminbi-denominated payments falling by more than 22% month-on-month in October.

Use of the yuan in trade finance deals has fallen sharply. According to Swift data from November, the renminbi’s share of global trade finance activity has nearly halved, to 4.61%, from 8.66% three years ago. In its January 2016 Middle East Rmb Tracker, Swift observed that most payments processed between China and the Gulf states were still settled in dollars and cleared by US clearing banks.

Most of the completed prints came courtesy of lenders or government departments, such as the finance ministry’s sale of Rmb3 billion ($436 million) worth of bonds in London in May. The total volume of offshore-printed dim sum bonds was $8.2 billion in the first 11 months of 2016, down from $17.9 billion in the same period a year before and $33.4 billion in 2014.

Some of these problems are self-inflicted. Others are beyond Beijing’s control, or a mix of the two. Foreign investors have cooled on the renminbi due to a steady weakening of the mainland economy, as well as concerns about the currency’s depreciation and capital flight.

But it all helps to paint a picture in which everyone from corporates to currency traders, commercial lenders to central banks, is left wondering what the IMF was thinking when it shoehorned the renminbi into its elite basket of top-flight currencies.

As 2016 began, peer-to-peer lenders looked set to become the mainstays of modern consumer and small-business lending.

Back in October 2015, SoFi, one of the biggest marketplace lenders in the US offering student-loan refinancing, mortgages and personal finance, had raised $1 billion in a single shot through a series-E funding round led by SoftBank. This may have been the largest single investment ever in a fintech company.

SoFi does not use Fico credit scores in loan underwriting, but rather considers employment history, track record of meeting financial obligations and cash flow. CEO and co-founder Mike Cagney says: “We are proud to be the only major lender that does not use the [Fico] score for any lending. Instead of relying on a three-digit number to tell us who’s qualified, we look for applicants who have historically paid their bills on time and make more money than they spend. It’s that simple.”

Is it really though? Because 2016, rather than being the year of triumphant emergence for P2P lenders, was the year when the dangers of making consumer loans based on borrowers’ Facebook likes and Twitter followers became obvious.

Renaud Laplanche, founder and chief executive of Lending Club, the largest marketplace lender in the US, had to resign, along with three senior colleagues in May. Lending Club announced that the sale of $22 million of loans to a single investor had breached that investor’s express instructions and, shockingly, certain personnel at the firm were aware of this.

The buyer was Jefferies and the sale was part of the ramp-up of a loan securitization, a process on which marketplace lenders have become increasingly reliant due to the difficulties inherent in trying to match retail investors against borrowers in real time without all the infrastructure of a traditional bank.

Lending Club had floated in late 2014 and its shares ended that year at $25. They sank to $3.51 in mid-May before recovering to $5.60 at the start of December 2016 – a truly, bank-like performance.

First there was the rescue of the IPO of Banca Popolare di Vicenza by a fund, Atlas, rapidly set up by a previously little known asset manager, Quaestio. It left few in doubt about the state’s role in masterminding the deal. Then there was Monte dei Paschi di Siena’s own quixotic efforts to engineer a private-sector recapitalization. MPS’s endeavour encountered much difficulty, to say the least, even with the availability of help from Atlas and EU-approved state guarantees over senior tranches of bad-debt securitizations.

But despite the best efforts of the Italians, this award has to go to Caixa Geral de Depósitos (CGD), Portugal’s biggest bank. EU competition commissioner Margrethe Vestager came to the conclusion in late August that it would, in principle, not be state aid if the Portuguese government injected €2.7 billion into CGD as part of a planned €4.1 billion capital increase. Instead, the EC took a leap of faith and reached the dubious conviction that CGD’s prospects in terms of profitability would be sufficient to attract private-sector investment on the same terms.

Vestager’s position seemed to offer some relief to Portugal’s capital-starved financial sector. The plan also included a sale of €1 billion in subordinated debt to private investors, as well as the transfer of €500 million of shares in a CGD subsidiary back to the parent and the conversion of €900 million of state-owned contingent convertible bonds to CGD shares.

Vestager seems to have been able to make an exception due to CGD’s unique character in Europe as a commercial bank with a large market share in its home market that has remained state-owned over the longer-term.

But it perhaps raises the question of which other wobbly banks with majority state ownership might have the same advantage. If RBS needed another rescue, would that also not be state aid because it is already state-owned?

If the EU decides CGD’s recapitalization does ultimately constitute state aid, it may be subject to an operational restructuring even more draconian than the one it put forward to the EU in the summer. But with the resignation of CGD’s new chief executive Antonio Domingues along with six board members in November, the capital raising has been delayed, perhaps until early 2017.

Meanwhile, the fate of other southern European banks’ capital raising plans might suggest private investors would have also struggled to make a case for an investment in CGD.

We journalists do our best, but sometimes we have to applaud the work of others. That was our response when the US Department of Justice launched its filing in July, nominally against “The Wolf of Wall Street Motion Picture”, but in truth covering the whole sprawling mess of the 1MDB scandal.

The 136-page document has everything. It has a New York penthouse and a Bombardier Jet (identified right down not only to its registration but the serial numbers on its Rolls Royce engines). It has Van Gogh artwork and incriminating emails from Malaysian financier Jho Low to Goldman executives that start with “Bro”.

More than anything, an elaborate and fabulously complicated story is narrated with remarkable professional zeal as cash flits from Malaysia to Swiss and Singaporean private banking accounts and to Saudi Arabian petroleum joint ventures.

Sometimes it feels like a Watergate report, such as when reading a verbatim transcript of a conversation between two Deutsche Bank staffers and an officer from 1MDB. The Deutsche guys try humbly to understand why $700 million is going to PetroSaudi: “This is where they want to send, they want to send to Timbuktu also, we don’t care,” says the 1MDB man.

Sometimes it feels like a James Bond movie: “The Venetian Casino used customer account number XXX4296 to identify Low. On or about July 10, 2012, $11,000,000 was deposited into Low’s account at the Venetian Casino, and records show that Low gambled there for approximately seven days.”

But mostly, it shows the most extraordinary forensic investigative skill, through 513 numbered paragraphs each packed with detail, account numbers, transfers, subsidiaries and unmasked deceit. It is signed off by “Robert B Heuchling, special agent, Federal Bureau of Investigation.”

After a stellar career saving economies for the IMF and with a comfortable pension to boot, Patrick Njoroge could have slipped into a comfortable retirement anywhere in the world. As he told us in 2016, he rather likes New Zealand’s clean air.

Instead, Njoroge came home and became governor of Kenya’s central bank. Once ensconced, he set about daring one of the world’s most notoriously kleptocratic countries to clean up its act.

As he told Euromoney in April last year: “I have no illusions that this is a bed of roses. It’s not. I was surprised by how much, let’s say, political pressures come to bear on this. On a scale of one to 10, maybe I expected it at six, and it’s at eight. Maybe they’re surprised that I’m so open about it, I’m just calling it as I see it.”

These are fighting words to Kenyan politicians, with their predilection to pinch, pilfer and purloin the public purse. Njoroge told us his job was not to bust corruption but to run a world-class central bank. But he also said he would have no hesitation to call out graft if he discovered it within his brief at the bank.

Njoroge has been in the CBK gig for 18 months and has quickly become the most trusted public official in thrusting East Africa’s pivotal economy. The shilling has been stabilized, as have interest rates, while the banks have been brought to his no-nonsense heel.

He has not minced his words either. He publicly opposed his president’s interest-rate cap bill, passed in August, saying it would: “Inevitably result in even more suffering by the majority of the population”.

But history does not favour Njoroge. Five of his seven predecessors as governor since the CBK’s foundation in 1966 left the governorship in controversy, hounded out of office by real or contrived corruption scandals.

A committed member of Opus Dei, Njoroge could do worse than draw that hair shirt ever tighter to him. He admitted to Euromoney in November that his time in the role so far has been: “Colourful. There are good days and bad days.”

It can be hard to remember that there was a time, not so long ago, when the words “Let’s buy a bank in Ukraine” were music to the ears of bank board members in western Europe.

Yet in the heady days before the financial crisis, such was the enthusiasm for eastern expansion that no fewer than eight big players from Austria, Germany, Italy, France and even Sweden paid handsome sums for a foothold in what was seen as one of the most promising banking markets in emerging Europe.

Western banks with smaller franchises duly cut their losses. Erste Group, Commerzbank and SEB dumped their Ukrainian holdings in 2012. Swedbank followed suit a year later.

Owners of larger Ukrainian lenders have found it more difficult to get out. Intesa Sanpaolo arranged a timely sale of Pravex Bank in January 2014 but had to cancel the transaction after regulatory approval failed to materialize – possibly due to the fact that the would-be buyer, Dmitry Firtash, is wanted on corruption and money-laundering charges in Spain and the US.

Raiffeisen, which led the charge into Ukraine in 2005, also failed to find a buyer for its holding in Bank Aval. Instead, the Austrian group sold a 30% stake to the EBRD, gaining some much-needed capital, and hunkered down for the long haul. BNP Paribas has also remained in Ukraine

The exit came at a price, however. And not a cash one. In exchange for the bank for which it paid a record $2.2 billion in July 2007, UniCredit received a 10% stake in Alfa-Bank’s holding company – which includes operations in Ukraine, Belarus and Kazakhstan.

So, not entirely a clean break. But at least UniCredit will be spared further rounds of recapitalization in Ukraine. Four in the last three years were enough to be going on with.

You cannot talk about past performance – partly because it is so bad and partly because the public body that generated the sovereign’s data had been churning out whatever numbers the previous administration told it to. The lawyers working with you on your bond deal add to your challenge by preventing you from talking about any future economic performance in anything but the most generic of terms.

Santiago Bausili, head of Argentina’s public credit, remembers receiving an early draft that included helpful slides about the country’s landmass and population density.

The problem for the junior bankers who assemble these pitches is that they were not old enough to remember how important a player Argentina had once been in EM debt. And neither were those people in the sovereign’s treasury team who passed up the bland PowerPoint document for Bausili to approve.

On October 19, Saudi Arabia’s energy minister, Khalid al-Falih, announced to an audience including top oil industry executives that the deepest and longest oil rout in decades had come to an end.

“We are now at the end of a considerable downturn,” he was reported to tell the Oil and Money conference in London.

Completely by coincidence, of course, banks in London were that very morning embarking on the second day of a two-day execution of the largest-ever syndicated sovereign bond: a $17.5 billion mega multi-trancher for none other than Saudi Arabia.

On the day Saudi Arabia’s al-Falih made his happy prediction, WTI crude contracts traded at $50.43 a barrel. At the end of November, they were below $46, due to Opec’s inability to agree on production cuts combined with the strengthening dollar.

The 30-year bonds were said to trade down by five points in early November, although a general slump in bonds after the election of Donald Trump likely played a role. By late November, all three maturity tranches in the megabond were trading at cash prices in the high 90s.

As of November 30, things were looking up. Opec came to an agreement to cut production by 1.2 million barrels-a-day for six months. Before a deal had even been reached, oil prices soared more than 8% when oil minister Jabbar al-Luaibi proclaimed he was “optimistic” that the countries would strike an agreement.

Happily, they did, and the sovereign may yet be able to fulfil its commitment to balance the budget by 2020 and diversify its economy into mining and tourism. The free-spending former finance minister Ibrahim al-Assaf was sacked shortly after the megabond sale, replaced by Mohammed Al-Jadaan, whose extensive experience in finance bodes well for the country’s commitment to Vision 2030.

All is well that ends well. But the journey to a balanced budget and wide reforms is far from over. The nation has to issue between $12 billion and $15 billion in bonds a year for the next four years to hit its budget goals. That might not be easy if the so-called ‘great rotation’ out of bonds that began in November continues apace. And the yield offered will almost certainly have to be higher.

So when Saudi Arabia next comes to the international bond markets, keep an eye out for any punchy predictions coming from one of King Salman’s ministers.

Admittedly, after 16 years as governor and as the first woman to serve in the position, the high-profile and open-door Zeti Akhtar Aziz was always going to be a hard act to follow for her deputy governor, Muhammad bin Ibrahim, who took over after her April retirement.

But for anyone outside Malaysia – and many inside it – it has been a matter of ‘Who he?’ Of course, we are not suggesting Ibrahim’s evanescence has anything to do with his prime minister Najib Razak’s emasculation of Malaysia’s civil service in the wake of the 1MDB corruption scandal, where the tidy sum of $680 million curiously found its way into Najib’s personal bank account.

Perish that thought, but we have noticed that where the formidable Zeti had repeatedly asked 1MBD uncomfortable questions about its finances in her last year in office, copping some very nasty trolling from Najibistas for her efforts, Ibrahim decided it was best to shut down Bank Negara’s probes soon after he took office.

Perhaps lest Malaysians thought their central bank was rudderless, Ibrahim surfaced briefly in November to warn foreign banks to stop their offshore trading in his flailing ringgit, an edict that only had the effect of sending it even lower than the 14-month lows against the dollar it was already plumbing, spooked by the 1MDB fuss.

Perhaps Ibrahim did not realize that 40% of Malaysian sovereign debt is held by foreign investors, who have grown rather fond of Malaysia’s open markets.

We await Ibrahim’s next trick with baited breath – long-suffering Malaysians and the market, less so.

And why not? Rahman, nestled happily alongside a group of his peers, including finance minister Abul Maal Abdul Muhith, was looking at some very nice numbers indeed. Bangladesh’s economy was on track to grow by a shade under 7% in the financial year to end-June 2016. Exports were growing by more than 8%, defying global gloom and a strong currency, while foreign exchange reserves had just hit a record high, topping $28 billion in December.

During a three-hour round table, Rahman gamely paraded a long list of the bank’s most-prized accomplishments and blended them with a few choice clichés. Bangladesh Bank had, he said, “taken strict measures” to make local bank boards more functional, while working “tirelessly” to boost “financial stability”. Other highlights included a personal assurance to foreign investors that he was “working on both hard and soft infrastructure”, while also placing “the highest emphasis on good governance”.

It was all good stuff, delivered through thin lips and glassy eyes. Yet within six weeks, he was gone, dethroned and replaced by Fazle Kabir, former chairman of state-run Sonali Bank. In hindsight, Rahman’s demise began in May 2015, seven months before our meeting and nine before his defenestration, when four hackers broke into the central bank’s systems, planting sleeper malware that lurked in the background, quietly observing and recording how Bangladesh Bank staffers operated: the hours they worked, their repartee and chosen methods of communication and how and when they placed and fulfilled orders.

On February 5, less than a week after our meeting in Dhaka, the hackers struck. Four idle bank accounts registered in the Philippines capital of Manila were activated. The malware kicked into gear, cloning legitimate transactions and placing 35 fake money transfer orders worth $1 billion with the Federal Reserve Bank of New York – all in Bangladesh Bank’s name. The New York Fed froze or cancelled all but five of those orders, but the hackers still got away with $81 million, the cash siphoned into accounts in the Philippines and Sri Lanka, then spirited away.

Bangladesh Bank’s reaction was a classic of its kind. It took two full days to realize it had been the victim of one of the most audacious bank raids in history. Then it sank into a kind of foggy denial, fudging and faffing, hoping that no one would notice the missing cash. It took another four weeks for the hack to come to light and another two until Rahman fell on his sword, followed swiftly by two of his deputies.

Rahman departed with rebukes from the finance minister ringing in his ears. Yet had his team really been “incompetent”, as Muhith averred, or simply guilty of being panicky, scared humans, reacting to disaster by shutting down and closing ranks? After all, it could have been worse – Bangladesh Bank would have lost $951 million, had all the orders been processed.

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